Wednesday, July 29, 2015

Is it too much to surmise that David Cameron is reading
these blogs of mine?

Only a day after publishing my last blog dealing with
H.M.Treasury’s delight in accepting a significant chunk of the dirty money being
laundered through London, David Cameron was on his feet, making a policy
statement about criminal money in London.

Speaking at a press briefing
in Singapore, the prime minister vowed to expose the use of "anonymous
shell companies" to buy luxury UK properties - often in London.

Corruption, he added, was
"a cancer which is at the heart of so many of the world's problems"
and must be tackled.

"But I want to ensure
that all this money is clean money. There is no place for dirty money in
Britain.

"Indeed, there should be
no place for dirty money anywhere. That's my message to foreign fraudsters:
London is not a place to stash your dodgy cash."

The Prime Minister indicated
that he would put fresh pressure on Britain's offshore tax havens to increase
transparency around company ownership.

"To really tackle
corruption effectively, we need to be able to trace data from one country to
another. We don't want criminals to be able to go unnoticed, just because they
move money across borders or have assets in different countries.

"The torchlight should
be able to follow them. If we are to win, we must make sure that there is
nowhere to hide.

"Corruption is one of
the greatest enemies of progress in our time."

Mr Cameron said the global
Anti-Corruption Summit in London next year will be a meeting where "the
whole world can work together to strengthen all the tools we have to take on
corruption".

Now, these statements have
all the ring of strong leadership, which is after all what they are expected to
achieve but the question we are entitled to ask is whether Cameron is just
being naive and he genuinely doesn’t know how much or what kind of criminal
money is flowing through London; or is he engaging in that classic British
public utterance stance, and demonstrating a huge degree of perfidious
hypocrisy?

We already have well-defined
procedures and processes which those who handle the proceeds of foreign capital
are supposed to undertake in order to prevent the likelihood of foreign corrupt
money from finding a safe haven in London. These procedures are well documented
and exist specifically to facilitate the ability to ‘follow the money’.

The major problem is that
none of these actors, the lawyers, the estate agents, the intermediaries do
anything more than pay a degree of superficial lip-service to these regulatory
requirements. They know that too great a degree of incisive questioning will
result in the client taking his business to another firm who will ask fewer
questions.

The intermediaries are among
the most egregious of all the agencies which are required to provide a strong
level of compliance with anti-money laundering laws, and in so many, many
cases, the rules and the regulations are routinely ignored.

The reason I am stressing
these points is that I want to try and put some realistic shape into the true
picture of world-wide funny money.

Cameron does what others of
his class and type do – he refers to ‘foreign fraudsters’, while never once
referring to dirty British intermediaries, middle men, lawyers, accountants and
financiers, who are more responsible for facilitating the transmission of
secret money.

The political class has to
have a demonstrable villain to be able to blame for the creation of criminal
proceeds, hence Cameron talks so glibly about ‘fraudsters’. He feels more
comfortable having an identifiable ‘Mr Big’ to blame.

What he manifestly fails to
realise is that the vast majority of the world’s fleeing cash, secret capital,
funny money, is not necessarily the proceeds of identifiable traditional
criminal conduct, but is usually comprised of capital flight and tax evasion.

This money is less-obviously
identifiable as a criminal proceed, but once it becomes evaded taxation, it is
criminal, and is interdictable in the same way as drug money of the proceeds of
a robbery.

Most tax evasion is
facilitated through a corrupt relationship, it is the proceeds of a corrupt
transaction, and is as dirty as any other kind of funny money.

The world's super-rich have taken
advantage of lax tax rules to siphon off at least $21 trillion, and
possibly as much as $32tn, from their home countries and hide it abroad – a sum
larger than the entire American economy.

James Henry, a former chief
economist at consultancy McKinsey and an expert on tax havens, has conducted
groundbreaking new research for the Tax Justice Network campaign group –
sifting through data from the Bank for International Settlements (BIS), the
International Monetary Fund (IMF) and private sector analysts to construct an
alarming picture that shows capital flooding out of countries across the world
and disappearing into the cracks in the financial system.

Despite the professed
determination of the G20 group of leading economies to tackle tax secrecy,
investors in scores of countries – including the US and the UK – are still able
to hide some or all of their assets from the taxman.

"This offshore economy
is large enough to have a major impact on estimates of inequality of wealth and
income; on estimates of national income and debt ratios; and – most importantly
– to have very significant negative impacts on the domestic tax bases of
'source' countries," Henry says.

Using the BIS's measure of
"offshore deposits" – cash held outside the depositor's home country
– and scaling it up according to the proportion of their portfolio large
investors usually hold in cash, he estimates that between $21tn (£13tn) and
$32tn (£20tn) in financial assets has been hidden from the world's tax
authorities.

"These estimates reveal
a staggering failure," says John Christensen of the Tax Justice Network.
"Inequality is much, much worse than official statistics show, but
politicians are still relying on trickle-down to transfer wealth to poorer
people.

When we start to consider
this kind of wealth, and more importantly, what it can buy, it makes Cameron’s
rather childish interpretations pale into insignificance.

Part of the problem is that
the City of London has always traditionally looked upon other people’s funny
money as being somehow fair game to be applied for investment purposes.

The
players in this game have hidden behind a series of tax fictions for many
years, but the introduction of a concept of ‘all crimes money laundering’
immediately put paid to any sense that tax was not included in the list of
proceeds that could be laundered.

Tax evasion or tax fraud is a
crime, and the proceeds are just as criminal as any other wrongdoing.

So when some Russian oligarch
or Chinese businessman seeks to use his secret slush fund to buy property in
London, those who have the duty to facilitate the transaction, the lawyers,
accountants, estate agents, etc, also have a legal duty to ensure that this
money is not of an illegal provenance.

They are required to
undertake specific investigations demonstrating that they truly ‘know their
customer’. They have to do this to ensure that the client is not a PEP or a
politically exposed person, because that requires further and enhanced due
diligence to be undertaken before any financial transaction can be undertaken.

They are also required to
demonstrate that they know where the money has come from. Now, in many cases,
the money is transferred from some offshore tax secrecy jurisdiction, and the
intermediary is still required to demonstrate that they know who is the beneficial
owner of the funds before the transaction can be undertaken.

That is why a lot of single
purpose uk companies are being formed, merely for the purpose of facilitating
the money flow. You see, in order for the transaction to go through smoothly,
in many cases purchase money will be lodged in the solicitor’s client account.
As long as the money itself comes from a
British bank account to lodge in the solicitor’s client account, it is unlikely
that too many questions will be asked. That is why in so many cases, a UK
company will be formed, with a bank account, merely for the purpose of
receiving one specific transaction. The money will flow from the tax haven,
into the UK account and straight onwards to the lawyer’s segregated client
account.

In total, 10 million
individuals around the world hold assets offshore, according to Henry's
analysis; but almost half of the minimum estimate of $21tn – $9.8tn – is owned
by just 92,000 people. And that does not include the non-financial assets –
art, yachts, mansions in Kensington – that many of the world's movers and
shakers like to use as homes for their immense riches.

"If we could figure out
how to tax all this offshore wealth without killing the proverbial golden
goose, or at least entice its owners to reinvest it back home, this sector of
the global underground is easily large enough to make a significant
contribution to tax justice, investment and paying the costs of global problems
like climate change," Henry says.

He corroborates his findings
by using national accounts to assemble estimates of the cumulative capital
flight from more than 130 low- to middle-income countries over almost 40 years,
and the returns their wealthy owners are likely to have made from them.

The sheer scale of the hidden
assets held by the super-rich also suggests that standard measures of
inequality, which tend to rely on surveys of household income or wealth in
individual countries, radically underestimate the true gap between rich and
poor.

In fact, some experts believe
the amount of assets being held offshore is so large that accounting for it
fully would radically alter the balance of financial power between countries.

The French economist Thomas Piketty, an expert on inequality who helps compile
the World Top Incomes Database, says research by his colleagues has shown that
"the wealth held in tax havens is probably sufficiently substantial to
turn Europe into a very large net creditor with respect to the rest of
the world."

Whatever the source of the
money, drugs, fraud, extortion, corruption, people trafficking or tax evasion,
it all finds its way to and through the City of London at some point in its
journey.

This is because London sits at the epicentre of the world’s financial
freeways, it is the leading point where the upperworld and the offshore economy
meet, and it provides the UK with a massive secret and hidden income stream,
which those making the money by facilkitating the world’s super-rich, are going
to be loathe to give up.

David Cameron can talk up the
need to crack down on corruption and money laundering, but his message is
falling on deaf ears. The National Crimes Authority may be well aware of the
statistics and the measure of the wrongdoing being perpetrated, but they are
just talking still, no-one has been arrested for this money laundering. The
banks don’t want to discuss it, why give up a good thing?

London will continue to be
the money launderer to every crook in creation, and no-one wants to do anything
about it, no matter what David Cameron may say!

Monday, July 27, 2015

Donald Toon of the National Crime Agency has said he is alarmed by
the number of homes registered to complex offshore corporations - some
of which have been bought with laundered money.

He added that the inflows are big enough to be responsible for driving London property prices artificially high.

The Treasury has received a £150 million windfall in the past three
months from a tax on properties purchased by companies, trusts and
investment funds, rather than individuals, thus supporting Mr Toon's
claim, and demonstrating that Government doesn't care enough about this
problem to stop the inflow of free money to the Treasury!

Mr Toon has been reported saying: 'I believe the London property
market has been skewed by laundered money. Prices are being artificially
driven up by overseas criminals who want to sequester their assets here
in the UK.'

Hundreds of billions of pounds are laundered in the City every year,
according to the National Crime Agency, and investigations are
intensifying into the matter.

Mr Toon added: 'Prices of high end property are being artificially
driven up by the desire of overseas criminals to sequester their assets
here in the UK. What they are doing is distorting the market.

Anonymous front companies in the UK are at the heart of an
investigation into one of Europe’s biggest money-laundering operations,
allegedly forming part of a conspiracy to make $20bn (£12.5bn) of dirty
money look legitimate. The funds are believed to have come from major
criminals and corrupt officials around the world wanting to make their
ill-gotten cash appear “clean”, so they can spend it without suspicion.

At least 19 UK-based front companies are under suspicion. The scandal
highlights how lax corporate rules have made this country an attractive
destination for global organised crime. The secrecy company directors
are entitled to under UK law is also hindering attempts to identify the
“Mr Bigs” behind the scam.

An investigation by The Independent and the Organised Crime
and Corruption Reporting Project, an NGO, has identified dozens of firms
in a global web spreading from Birmingham to Belize.
The scam appears to have gone on for four years before being shut
down in May by investigators in another of its main centres – the former
Soviet republic of Moldova.

Vasile Sarco, an investigating officer in Moldova, told The Independent: “This money was routed from Russia, but the companies incorporated in Britain were instrumental to transit the funds.”

He has sought help from UK organised crime police to help track down the British end of the operation.

These investigations are merely a small snapshot of the kinds of
scams which are being perpetrated to enable foreign dirty money to find a
‘clean’ home.

But why go to such lengths when all that is required is the
opportunity to buy property ‘off-plan’, in London. Vast sums of money
are being imported into the UK to pay for flats and properties, many of
which not even been completed yet. The purchasers are largely from the
Far East, particularly Hong Kong, and there is no information available
to identify the provenance of the money.

This is what is causing such concern to Donald Toon and his team.

The transfer of the funds are being facilitated by dishonest and
egregious Estate Agents and Solicitors who are deliberately flouting the
laws and regulations designed to require greater transparency of the
funds being made available; and the money flows into and out of global
banks who couldn’t care less about the provenance of the money, as HSBC
so glibly proved to the world with their Mexican drug money laundering
operations.

How has this ludicrous state of affairs been allowed to arise,
particularly when we have some of the most Draconian anti-money
laundering laws and regulations in the world?

Our laws were implemented in 1994, together with a compendious volume
of regulations, which were designed to provide institutions subject to
the legislation with a framework upon which they could begin to build a
compliant anti-money laundering policy and procedure set.

There was one major and ridiculous failing with this procedure. No
agency was tasked with the job of supervising and enforcing the new
rules and regulations, and without a continuous process of surveillance
to ensure compliance the new laws didn’t have a hope in hell of being
complied with.

The Regulations were a compendious set of requirements which would
enable the philosophical underpinning of the new legislation to be put
into action, but as no law enforcement agency or regulatory body was
willing to take on the oversight of the new regime, the entire lot just
fell into misuse.

When the new laws were first introduced, there was major
consternation expressed by the financial services industry, and the
Government tasked the National Criminal Intelligence Service to provide a
series of public workshops to inform and advise practitioners of the
meaning of the new regulations, and for a short period of time, they
were heavily oversubscribed.

I know this because I was one of the major contributors to the
workshops, and spent some months running two workshops a day, lecturing
bankers and other practitioners. It was very obvious that they were all
very concerned about the new laws because they contained penal
sanctions, and there was huge outrage expressed at the likelihood that
practitioners might face prison sentences for doing what they had
traditionally done for years.

We spent many hours, days and weeks explaining that no-one need fear a
prison sentence if the relatively simple laws and regulations were
complied with effectively. These merely required practitioners to ensure
that they knew who their customers were and to be able to share with
police their addresses if necessary. The other requirement was that they
should make disclosures of financial transactions over which they
entertained any suspicions as to the provenance of the money being
handled. There were other regulations dealing with the requirement to
train staff in the rules and regulations dealing with money laundering,
but frankly, none of them were onerous in the least.

My law enforcement colleagues and I were at a loss to understand why
there was so much consternation expressed at what, to us, was such a
simple requirement.

Once the banks and financial institutions went back to work, they
quickly discovered that no-one bothered them to ensure that the Money
Laundering laws were being adhered to, and within a matter of a few
months, the regulations became virtually totally ignored.

In a report I was asked to compile for H.M.Treasury in September
1998, four years after the laws were first introduced, I was asked to
focus on the degree of compliance with the money laundering laws as
demonstrated by typical City practitioners.

“...Throughout my interviews with financial practitioners, it became
clear that the terms of the Money Laundering Regulations were being
openly flouted.

Adherence to the ‘know your customer’ rules; identification
procedures; record keeping procedures, and to a greater or lesser
extent, the training and education regulations, were at best adhered to
in skeletal theory; at worst, they were completely ignored.

Throughout my interviews, the same phrases kept re-appearing from those I interviewed.

‘These laws can not be that serious, no-one bothers to enforce them’! (LIFFE market local). ‘I can’t remember anyone asking me to show them any evidence of
my client identification procedures. It’s as if they don’t want to
know’! (Futures trader with small specialist broking company).

‘I think if somebody went to prison, we’d all sit up and take
notice. But the fact is that nobody wants to see London lose its place
in the world market, and they certainly aren’t going to start worrying
about a bit of funny Russian money coming in’! ( LIFFE floor trader).

‘I do ask to see evidence of client identification, but if I am
told that the introducing broker has done his homework, as long as
someone is happy to sign off on that, then it's none of my concern. I
don't get paid to turn away business'’ (Medium-sized broker’s compliance officer).

‘If the regulators started getting heavy with us about the regs,
we’d comply a bit better. Not a lot though, because they are all crap!
As it is, SFA don’t give a f***! They never ask to see the paperwork,
all they care about is seeing the right signatures on the right forms.
Most of them are so dumb, they wouldn’t know what they were looking at,
anyway’. (Young desk trader in a busy futures’ dealing operation).

‘Of course I am laundering money. I’ve got to be. Nobody does
these kinds of trades in this time scale, and at these volumes, and
loses as much money as some of these guys do, without having a reason
for doing it. Anyone can get on the wrong end of a trade, from time to
time, but you make damn sure you don’t make the same mistake again.
These guys are just moving around huge sums of other people’s cash, and
they are willing to pay for the privilege’. (Forex dealer in a small private client firm).

‘Look, if anyone asks me, I’ll deny I said this to you on a stack
of bibles, but what do you think we do for a living. Someone wants to
move some money, and I am there to help them. It doesn’t happen all the
time, most times we’re just taking positions. Anyway, all this stuff you
are asking cannot be that important, even the regulators don’t ask
about it’. (Same Forex dealer)

What became abundantly clear in the interviews was that there was a
general acceptance that the Money Laundering Regulations were not only
not being enforced, but that those with responsibility for their
regulation, in the minds of the interviewees, the SFA (FSA), did not
seem to care about their enforcement. Whether or not the SFA (FSA)
accepts that it does have regulatory responsibility for the enforcement
of the provisions of the Money Laundering Regulations, the market and
those it regulates in other areas believes it has such a responsibility!

Since those days, the money laundering laws were routinely ignored by
regulators, until, in the end, the FSA and now the FCA have been
literally forced to start taking notice of the need to start putting
some muscle into the regulation of the financial market with regard to
funny money, but frankly, it is already too late.

The anti-money laundering regime has been flouted for too long. Under
Gordon Brown, the regulatory agencies were encouraged to adopt a
hands-off stance while engaging in a ‘regulation light’ or ‘soft-touch
regulation’ regime. This meant that in order to please their political
masters, financial regulators left the financial sector very much to
itself to get on with business, because ‘Wee Gordy’ and his bullyboy
sidekick, Ed Balls liked the money that was pouring in to the Treasury
from the City.

The effect was to allow (encourage) London to gain a reputation for
allowing any kind of funny money to find a safe home, and thus all kinds
of black and criminal money has flooded into the City.
Stephen Barclay MP believes the City of London has become the
favourite place for the world's dishonest officials to hide stolen
money, but he was only repeating the words of former oligarch, Alexander
Lebdev who, at a Cambridge Financial Crime Conference, openly described
London as the laundry of choice for the world’s organised criminals.

The City of London’s status as a favourite place for the world’s
dishonest officials to hide stolen money will remain a stain on the UK’s
reputation, despite a long-awaited government anti-corruption plan.

Stephen Barclay, a Conservative MP, who worked in senior
anti-money-laundering roles at the Financial Services Authority (FSA)
and Barclays Bank before entering parliament in 2010, said the plan did
not address flaws in the UK’s financial system that allow crooked
officials from foreign countries to hide ill-gotten gains in London’s
banks.

The MP said a series of official reports from the 1990s to the
present had shown banks were not tackling money laundering adequately.
“Money-laundering officers need to be senior figures with sufficient
clout to turn down high-risk, highly lucrative clients [suspected of
money laundering], but too often responsibility is passed down the
decision tree.”

He stressed he wasn’t bashing the banks, which he believes face a
system of costly regulatory compliance that leads them to spend millions
on ineffective controls, such as running background checks on grannies,
rather than high-risk, wealthy foreign clients moving large sums of
money through the UK. Financial institutions also have little support
from cash-strapped law-enforcement agencies, meaning “the banks are
almost fishing in the dark”.

“When there is a high-risk multimillion pound transaction, the bank
files a suspicious activity report, but 93% of the reports are never
read,” he said.

Some of these fears were echoed in a recent report by the Financial
Conduct Authority (FCA), the successor to the FSA, which found
significant weakness in anti-money-laundering controls, following an
investigation into 21 banks. The FCA declined to name the banks, (which
makes the whole exercise utterly futile) but said the investigation was
focused on small private and retail banks, rather than well-known high
street names.

More than half of the banks the FCA visited had not assessed
money-laundering risk, while six were deemed to be seriously weak. One
London-based branch of an overseas bank had opened an account for a
client who had been charged with 107 counts of money laundering. Another
bank reported a clean bill of health for a customer, when a Google
search showed an African government committee had alleged they were
guilty of corruption in the privatisation of state-owned companies.

Another bank officer, with the job of stopping the flow of illicit
funds, told the regulator he did not see the point of trying to find out
the source of wealth for “politically exposed persons”, an official
category in money-laundering law referring to senior government
officials that banks are obliged to run checks on. Several
money-laundering officers left their jobs following the FCA
investigation.

Between £23bn and £57bn of stolen money is laundered through London
each year, according to an estimate made by the City regulator in 2013.
Barclay said the UK anti-money-laundering regime was flawed because
government investigators did not have enough time to carry out detailed
checks on suspicious transactions in UK bank accounts. “If you only have
38 days [the legal maximum] to prove in court that these are corrupt
funds and corrupt officials in the home country don’t want to cooperate,
you can imagine how difficult it is to prove corrupt assets.”

A spokesperson for the Treasury, which drafts the
anti-money-laundering rules, said: “The UK has a comprehensive
anti-money-laundering regime and we are committed to ensuring our
financial system is a hostile environment for illicit finances...”

When the complacency in that particular piece of breathtaking
Treasury whabble-babble is dissected, it is easy to see why London has
become the world’s centre for dirty money laundering, and why the
Government just couldn't care less!

Monday, July 20, 2015

The City is fighting back against many of the regulatory
constraints designed to keep them as honest as it is possible so to do.

The Chief gamekeeper, Martin
Wheatly has been told discreetly that his post as head of FCA will not be
renewed in March 2016, and he has resigned.

Why has he gone?

He is stepping down early in
a move which has been interpreted as a sign that the government was keen to
take a less confrontational stance towards the financial sector and banks in
particular.

Wheatley,
viewed as a hardliner in regulatory terms (although only a banker could see his
work in these terms) resigned after the Chancellor, George Osborne said that different
leadership was required to take the regulator to the next stage of its development.The
decision showed a definite change in tone from ministers.

Having divested themselves
of the Lib-Dem Coalition, the Conservative Government now feels free to adopt a
more traditional Tory view of City dealings.

They have been under significant pressure from major banks
who have been threatening to move their business to other jurisdictions where
the regulatory regime is perceived to be less confrontational towards bankers,
and particularly with regard to so-called ‘ring-fencing’ provisions, whereby
retail banks are required to be separated completely from the control of their
investment bank colleagues, and operated as independent entities.

These challenges to Government from the City elites, are
not unusual!

There has always been a constant friction between the
City of London and the Government.

When you strip away the bombast, the ‘traditions’ and the
smart suits, much of membership of the ‘City’ is comprised of a cross section
of spivs, wide-boys, buccaneers, shady entrepreneurs, crooks, freemasons and
get-rich-quick merchants.

There should be no surprise at this, it has always been
thus, right from the earliest beginnings.

People go into the City to make money, lots of money. Again,
there is no surprise in this, the City is a profit centre all to itself. It is
a private club whose arcane rules are instinctively known to all its adherents,
and if you have to be told what they are, you are immediately identified as ‘not
one of us’!

In the very old days, men went into the City to risk
their own fortunes, in the hope of returns of even greater profits. They
sponsored ships to sail beyond their home horizons to explore distant lands, in
the hope of returning home carrying rare commodities worth many times their
weight in gold.

These men believed that if they were willing to risk
their own money to make a profit, and to bring back widely sought-after
cargoes, then the Government had no place telling them how to manage their own
affairs.

The first thing any new incoming King in the 15th
century did after taking control of the Crown, was to reassure the City fathers
of the continuance of their long-held freedoms and privileges. Medieval Kings
knew only too well that they relied on the merchants of the City to help them
pay for their wars and run their affairs, and there was always a cost.

Many people who read this blog are firmly of the belief
that I am too harsh in my criticisms of the City. They haven’t seen the amount
of wrong-doing and the law-breaking that I have experienced, nor the way in
which the ‘Establishment’ will close ranks to protect members of the club.

When I was a detective at the Fraud Squad, I had a lot of
dealings with the denizens of the Square Mile. I learned quickly that the
ordinary rules of social engagement did not appear to apply when it came to
dealings in the Square Mile.

I worked in the area of Commodity Futures, Options and
what we later came to call ‘Derivatives’.

Men in competing commercial houses routinely engaged in
conduct which would, in any other walk of life, have been considered utterly
dishonest.

But no-one complained, even some of the most egregious
behaviour was tolerated, on the basis that if you rip me off one week, I will
find a way to get you back next week.

Later, when I became a regulator, it was made very clear
to me by colleagues and members that my job was not to root out wrong-doing or
to criminalise practitioners and members who broke the law, stole client monies,
or cheated others. Our perceived role was to permit the appearance of
well-ordered market, while covering up a great deal of utter criminality.

As long as the City remained a professional’s market,
where competing practitioners were only dealing with each other, routine
skulduggery was considered to be fair game.

It was only when the financial sector began to market
itself to the private sector as a place wherein to hazard their personal money,
that the rules of engagement began to change.

The era of the South Sea Bubble in 1720 saw many hundreds
of private investors ruined by the collapse of the company as a result of fraud
and insider dealing.

The administration of the Square Mile has gone through
many changes in its history. Even the motto of the Stock Exchange, ‘Dictum Meum
Pactum’ or ‘My Word is my Bond’, is not what it seems.

After the South Sea Bubble, the Government sought to
prohibit short selling. This didn’t stop the spivs of the time from carrying on
with this profitable practice, but they were now prevented from writing down the
terms of the trade because it would be evidence of law-breaking. So where a man
entered into a short trade, he had to stand by his word, even if the deal went
against him.

The motto thus interpreted becomes not a statement of
utmost integrity, but is merely a thieves charter.

What we are facing today is a reiteration of previous
examples whereby the City is letting its political masters know that they have
gone too far in their regulatory zeal. They don’t want Government and
regulators getting in the way of their making money, and they are letting
George Osborne know, quietly, but effectively, in their submissions to the
Treasury and other Government Departments that they are not going to put up
with any more controls.

As I write, Treasury
officials are considering plans to weaken the controversial ring-fence scheme
that will split retail and investment banks.

Senior City and Treasury
sources are wobbling and are letting it be known, ‘through channels’ that
proposed governance rules, under which independent boards would be installed at
retail lenders, could be watered down.

Senior bank executives are
having weekly behind-the-scenes talks with the Bank of England. They want the
rules changed so that control of their banks is in the hands of one board.

Of course they do, then they
can use the existence of the balances held in their retail client accounts to
obfuscate the true picture of the capital adequacies held in the Investment
banking arm. They will engage in a wholesale exercise in creative accounting in
order to make things look good, and yet again, retail customers’ money will be
put at risk.

Don’t forget, and this is
precisely what the banks want us to do, but it is only a couple of years since
the House of Commons Treasury Select Committee reported on Banking Standards.
Regarding ring-fencing, this is what they said;

“..."Parliament took the
unprecedented step of creating its own inquiry into banking standards, in the
wake of the first revelations about the Libor scandal. The latest revelations
of collusion, corruption and market-rigging beggar belief. It is the clearest
illustration yet that a great deal more needs to be done to restore standards
in banking.

The Government asked us to
look at one of its main proposals for increasing financial stability –
ring-fencing – as part of our work.

The Commission welcomes the
creation of a ring-fence. It can, in principle, contribute to the Government’s
objectives of making the banking system more secure. It is essential that banks
are restructured in a way that allows them to fail, whether inside or outside
the ring-fence. Ring-fencing can also help address the damage done to culture
and standards in banking.

But the proposals, as they
stand, fall well short of what is required. Over time, the ring-fence will be
tested and challenged by the banks. Politicians, too, could succumb to lobbying
from banks and others, adding to pressure to put holes in the ring-fence.

For the ring-fence to
succeed, banks need to be discouraged from gaming the rules. All history tells
us they will do this unless incentivised not to...”

Those were official findings,
and they are instructive, particularly the words, “...The latest revelations of
collusion, corruption and market-rigging beggar belief...”

Nothing has changed in the
interim. The Banks have not been disincentivised from gaming the rules yet
again, nor in maintaining a separate retail banking structure.

There is too much money at
stake in the retail arm not to tempt the spivs and the cheats from making use
of it.

The City Grandees have
succeeded in getting rid of the man who was in charge of the regulator. One
report states that Martin Wheatley was considered to be ‘too public sector’ in
his outlook. That is Cityspeak for being too consumerist, or on the side of the
customer too much, when what the City wants is someone who feels more like they
do and understands how the game is played.

We must stand by for more
relaxing of the rules and regulations. The banks have not learned from their
past crimes, they have not yet paid enough in terms of knowing not to do it
again. Until such time as a senior bank executive grips the rails at the Old
Bailey knowing that he is going to be spending some time as a guest of Her
majesty, we must continue to operate in the suce and certain knowledge that the
spivs and wideboys are back.

They know they cannot make
money in the environment that was being created under the previous government,
and the financial proposals, particularly ring-fencing, fill them with horror.
We should be prepared for a less rigid enforcement regime to follow.

Your money will increasingly
be at risk in the future, and you should think very carefully before engaging
in any financial venture, because there is certain to be a flaw in it as far as
you are concerned.

Monday, July 13, 2015

Anthony Jenkins is a classic example of the application
of the ‘Peter Principle’.

The ‘Peter
Principle’ is a concept in management theory formulated by Laurence J
Peter in which the selection of a candidate for a position is based on the
candidate's performance in their current role, rather than on abilities
relevant to the intended role. Thus, employees only stop being promoted once
they can no longer perform effectively, and thus it is said that "managers
rise to the level of their incompetence."

Jenkins,
the outgoing boss of Barclays, began what he believed would be a five-year ‘journey’
in February 2013 to transform Barclays from a bank with a toxic reputation for
sleaze, wrong-doing and institutional arrogance, into the "go to"
bank, which had finally recovered its once-proud reputation and was attracting
good clients. It was intended to sweep away the bank’s reputation for providing
the complex tax avoidance products of the past, and to return the bank to an
institution with a reputation for good service, from staff who were less
motivated just to make profits and were encouraged more to treat customers with
respect.

On
the first day of his new tenure, Jenkins presented the findings of a review of
75 business lines which led to the closure of the structured capital markets
business – dubbed a machine for "industrial scale tax avoidance" by
former chancellor Lord Lawson – as well as a withdrawal from a business sector
which had made significant profits from speculating on food prices. Gambling on
food commodities at a time of severe economic hardship and routine austerity,
where many people were forced to resort to food banks to get something to eat
was perceived to be an unacceptable capitalist face too far.

In a
separate meeting, Jenkins told his staff it was now time to get started on
transforming the bank. "It's a call to action," he said.

What is perhaps
not wholly understood is why Jenkins was chosen in the first place to replace
Diamond after the brash American was forced out from his job after intense pressure
from the bank of England and the Financial Services Authority.

On 28 Jun
2012, it was widely reported that shareholders and political figures were among
those calling for CEO Bob Diamond to resign from Barclays after investigators
from the Financial Services Authority and the US Commodity Futures and Trading
Commission said they had found evidence that Barclays had tried to manipulate
Libor for several years in the run up to the financial crisis and in its
aftermath.

Let us be
clear, dishonestly manipulating or rigging a global benchmarking model falls
within one of the definitions covered by Section 17 Theft Act 1968, and is an
alleged criminal offence. As a result, Barclays came under a great deal of
criticism and opprobrium.

Lord
Oakeshott, a former Liberal Democrat Treasury spokesman, described the bank as
“a casino that was rigging the wheels and loading the dice”.

“If Bob
Diamond had a scintilla of shame, he would resign,” he said. "If Barclays'
board had an inch of backbone between them they would sack him."

Lord
Myners, former City minister, told the BBC's Newsnight that any Barclays
staff responsible for manipulating the Libor rate should face the prospect of
going to prison.

"This
is the most corrosive failure of moral behaviour I have seen in a major UK
financial institution in my career," he said.

"I
think fines and public criticism will not stop these behaviours. These
behaviours will not stop until the people perpetrating it or responsible for
overseeing them face the prospect of criminal charges and the prospect of going
to jail."

Martin
Taylor, the former chief executive of Barclays, told BBC Radio 4's Today
programme that the board of Barclays was facing questions about how it restores
the reputation of the business. "There's not much to a bank except its
licence, computer systems and reputation," he said. If a bank has a
"policy of systematic dishonesty" he added, then it has "some
rebuilding to do."

"It's
hard to believe that a policy which seems so systematic was not known to people
at or near the top of the bank", added Mr Taylor. But said that the
"question of how high up knowledge goes is something only Barclays can
answer".

Barclays,
reeling from the outpourings of public disapproval of their hugely dishonest conduct,
cast around desperately to find someone wholly untainted by an exposure to the
Bob Diamond regime, and who could be a safe pair of hands and steady the ship.

They did
what banks always do in these circumstances, look around for someone who can
give a good impression and who will help to soothe the troubled waters.

Enter
Anthony Jenkins, a career Barclays man, head of Retail Banking and with an
untainted reputation (although by his own admission he had overseen the PPI
fraud activities routinely carried on in the Retail bank). The point is, he was
not an Investment Banking man, and he was quickly identified as a man with
little or no understanding of or sympathy with the cultures and free-booting
ways of Investment banking.

However,
the problem with this kind of thinking is that it is always short-term (like
the rest of banking thinking) and is never intended to be a real answer to the
problem. It is just a way if buying time until the PR people and the usual City
lickspittle apologists, and slimy fellow-travellers can spin their webs, weave
their words, and influence opinions.

So,
we got the usual hocus-pocus, smoke and mirrors being announced. One of the
most outrageous and breathtakingly cynical moves was the setting up of the Judge
Business School and Barclays Bank joint venture to create the first executive
education academy for regulatory compliance in a bid to change the way the
financial industry is run.

Described
at the time as a potential world-first academic and industry collaboration, the
focus was said to be on a values and judgement-based approach to compliance, leading
thinking and creating understanding around the emerging regulatory regimes
which are being developed, or so it was said!,

However,
the honeymoon didn’t last long and soon the critics started to circle. In March
2014, the writer, Abigail Hoffman of the Economist was focusing in on Jenkins’
lack of Investment Banking skills.

“...The
tale seems to be unfolding exactly as I predicted. When Jenkins was appointed,
I was sceptical and wrote in my September 2012 column: "Barclays is in
desperate need of cultural change. Is Jenkins really the ideal candidate to
achieve this...?"

It is also
understood that Jenkins’ messages within the bank were not always well received
by staff. Some in the investment bank are reported to have jeered during a
session on cleaning up the culture. Jenkins insisted he had a "good
personal relationship" with Rich Ricci, head of the investment bank and a
former lieutenant of Diamond.

One of
the ways he intended to change the culture was to alter the way bonuses were
handed out. From the middle of the following year staff were to be measured on
the basis of a "balanced score card" against his five values of
respect, integrity, service, excellence and stewardship. This need not mean
smaller pay packets – even by City standards the bank is known for generous pay
deals – but ones that are not based entirely on generating profits.

Such
values can be found in any management manual, but in Barclays, more used to the
laissez-faire management style of Bob Diamond. It sparked cynicism about
whether Jenkins could change an organisation where he had worked for six years.

"I
understand the cynics and the sceptics," said Jenkins. "I use it as
an energy to drive me forward. I also know we are not going to change anything
if we are cynical and sceptical."

He was
asked how his success should be measured in five years' time. He cited better
customer service, high levels of colleague engagement and shareholders happy
with the returns they were receiving.

"If
we achieve those three things I think that would be a success – it's a long
journey," he said.

Well, now
we know that the journey would quickly be abandoned, and Jenkins would be
sacked.

He was
dispensed with, with very little ceremony. His tragedy is that he was a man
used to running a retail banking operation and he did not have the breadth of
experience needed to successfully run an investment bank, particularly one in
such bad odour, and which needed a lot of skill and experience to turn round.

He was
promoted to the top job because he was known to be a good man, a good
businessman, and most of all, he carried no Bob Diamond baggage. It was not his
fault that he was promoted to a level where his business competence would not
be sufficient for him to survive, a classic example of the Peter Principle.

I hope he
does not feel too badly about his fate.

He has, or
so it is reported, been paid a £28 million package to soothe his feelings.

Now, I am
having a little trouble reconciling these features.

This man
has been sacked from his job because it was said he was not good enough to do
the job required of him. Probably not his fault as I say, but we are told that
he was not up to the job expected and that he needed to be replaced. We can
surmise that the Barclays’ board felt that enough time had elapsed since the
last scandal, so they could return to the old ways of making money, but having
Mr Nice Guy at the helm wasn’t going to cut the mustard.

Barclays
have clearly demonstrated that they do not believe it is possible to make money
while operating under the kind of ethical constraints that Jenkins was expecting
them to adhere to, so ethics and honourable conduct are out, and business as
usual is back in!

And this
is why I say banks are dysfunctional. We have jall ust been through a new budget,
where the rewards for hard-working decent people, and their tax
responsibilities have been measured out in a’ few pounds here, a few pounds
there’.

Paying a
man £28 million to go away when he has been deemed to be a failure is obscene,
it is bizarre, it is plain bloody wrong, but try telling Barclays that!

About Me

Having spent my career dealing with financial crime, both as a Met detective and as a legal consultant, I now spend my time working with financial institutions advising them on the best way to provide compliance with the plethora of conflicting regulations and laws designed to prevent and forestall money laundering - whatever that might be! This blog aims to provide a venue for discussion on these and aligned issues, because most of these subjects are so surrounded by disinformation and downright intellectual dishonesty, an alternative mouthpiece is predicated. Please share your views with what is published here from time to time!